National Records of Scotland (NRS) published their Mid-2018 Population Estimates for Scotland on 25 April. They showed that the total Scottish population had reached a record level of 5,438,100 in mid-2018.
Despite growth of 0.2% in the total population over the year, the mid-year estimates revealed that population growth had slowed for the second year running.
The following charts paint the picture of how rising deaths, falling births and reducing overseas migration have contributed to this slowing of population growth.
The migration numbers are split between migration from the rest of the UK and migration from overseas. Unfortunately, overseas migration is not split between EU and non-EU, so it is not possible to identify EU net migration trends since the UK’s 2016 referendum decision to leave the EU. However, the figure above shows that overseas migration has fallen since 2016.
Demography matters for fiscal sustainability
The composition and likely future trends in the size and age distribution of the population have important implications for the long-term sustainability of the public finances. In terms of government revenues, different population age groups tend to make different contributions to labour supply and thus to tax receipts. The age structure also impacts on the future demands on public spending.
For example, the figure below shows the profile of tax contributions and certain public spending by age in the UK as a whole. This shows that on average, people above the state pension age are more likely to create fiscal pressures in areas like health and welfare spending, whilst also exiting the labour supply, resulting in lower tax revenues.
Representative profiles for tax, public services and welfare spending, UK
This life cycle profile of tax and spend in the UK will be similar in Scotland. Namely, that the peak years for tax contributions are a person’s 30s, 40s and 50s, and that the older an individual gets, the more likely they are to require resources from the health service and welfare state.
Given these life cycle profiles, creating a sustainable cohort of working age citizens is important for the sustainability of tax receipts and public services. However, in Scotland and much of the developed world, the trajectory in recent years has been towards population ageing.
What does the NRS data tell us about Scotland’s age structure?
There have been changes to the age structure of Scottish society over a number of years now, with increasing numbers in the over-65 category, traditionally the age at which individuals opt to retire from the labour market. As in much of the developed world, the trend towards population ageing is projected to continue in Scotland over the coming years and decades, with implications for public policy, and the sustainability of tax revenues and the public finances.
This presents politicians with challenges not only in how limited public finances are distributed to meet policy goals, but also in how the cohort of working age Scots paying taxes is increased to ensure that public finances are adequately sustained.
The NRS data also shows that inward migrants from overseas tend to be younger than migrants from the rest of the UK.
Population profile differs by local authority
Another noticeable feature of the recent NRS population data is the different age profiles across Scottish local authorities. The figures show that only two of Scotland’s 32 local authorities have seen an increase in the proportion of their working age population over the last 10 years.
Such trends will likely feed through to spending pressures and service demands being quite different across Scottish localities.
Concluding thoughts
With Scotland’s population expected to age further in the coming years, Scotland faces the possibility of greater pressures on both the spending and the revenue side.
This will present policy makers with some difficult choices, ensuring spending is as effective as possible and tax revenues are sufficient to support the services on which the public rely.
Andrew Aiton, SPICe Data Visualisation Manager; and Ross Burnside, Senior Researcher, Financial Scrutiny Unit